TIDMLGEN
RNS Number : 8033Y
Legal & General Group Plc
08 March 2017
Legal & General Full Year Results 2016 Part 2
IFRS and Release from Operations Page 25
Operating profit
For the year ended 31 December 2016
2016 2015
Notes GBPm GBPm
From continuing operations
Legal & General Retirement (LGR) 2.02 811 641
Legal & General Investment Management (LGIM) 2.03 366 355
Legal & General Capital (LGC) 2.05 257 233
Legal & General Insurance (LGI) 2.02 317 315
----- -----
- UK and Other 232 232
- US 85 83
----- -----
Savings 2.02 99 107
General Insurance 2.04 52 51
Operating profit from divisions 1,902 1,702
Group debt costs(1) (172) (153)
Group investment projects and expenses(2) 2.06 (102) (86)
Adjusted operating profit 1,628 1,463
Kingswood office closure costs (66) (8)
Operating profit 1,562 1,455
Investment and other variances 2.07 13 (119)
Gains on non-controlling interests 7 19
Profit before tax attributable to equity holders 1,582 1,355
Tax expense attributable to equity holders
of the company 2.15 (317) (261)
Profit for the year 1,265 1,094
Profit attributable to equity holders of the
company 1,258 1,075
p p
Earnings per share(3) 2.10 21.22 18.16
Diluted earnings per share(3) 2.10 21.13 18.04
1. Group debt costs exclude interest on non recourse financing.
2. Group investment projects and expenses in 2016 include restructuring
costs of GBP54m (2015: GBP42m).
3. All earnings per share calculations are based on profit attributable
to equity holders of the company.
This supplementary operating profit information (one of the
group's key performance indicators) provides further analysis of
the results reported under IFRS and the group believes it provides
shareholders with a better understanding of the underlying
performance of the business in the year.
During 2016, Insurance and LGA segments (excluding General
Insurance) were combined to create the new Legal & General
Insurance (LGI) segment. General Insurance is now presented as a
separate segment.
LGR represents worldwide pension risk transfer business
(including longevity insurance), individual retirement and lifetime
mortgages.
The LGIM segment represents institutional and retail investment
management and workplace savings businesses.
LGC represents shareholder assets invested in direct
investments, and traded and treasury assets.
LGI represents business in retail protection, group protection,
networks, Legal & General Netherlands (LGN) and protection
business written in the USA (LGA). LGI comparatives include Legal
& General France (LGF), which was sold during 2015.
Savings represents business in platforms, SIPPs and mature
savings including with-profits.
The General Insurance segment comprises short-term
protection.
During 2016, changes have been made to the organisational
structure. The advised sales and India businesses have transferred
to LGI from Savings, and Investment Discounts On Line Limited (the
IDOL) has been transferred to LGR from LGI. Comparatives have been
amended accordingly. The impact of this reclassification has been
to increase LGR 2015 operating profit by GBP2m, increase Savings
2015 operating profit by GBP8m and reduce LGI 2015 operating profit
by GBP10m.
Operating profit measures the pre-tax result excluding the
impact of investment volatility, economic assumption changes and
exceptional items. Operating profit therefore reflects longer-term
economic assumptions for the group's insurance businesses and
shareholder funds, except for LGC's trading businesses (which
reflects IFRS profit before tax) and LGA (which excludes unrealised
investment returns to align with the liability measurement under US
GAAP). Variances between actual and smoothed investment return
assumptions are reported below operating profit. Exceptional income
and expenses which arise outside the normal course of business in
the year, such as merger and acquisition, and start-up costs, are
also excluded from operating profit.
IFRS and Release from Operations Page 26
2.01 Reconciliation of release from operations to operating
profit before tax
The table below provides an analysis of the release from operations
by each of the group's business segments, together with a reconciliation
to operating profit before tax.
Changes Operating
New Net in Operating profit/
Release business release Exper- valuation Non-cash Inter- profit/ Tax (loss)
from surplus/ from ience assump- items national (loss) expense/ before
and
For the operations(1) (strain) operations variances tions other and after (credit) tax
year ended other(2) tax
31 December GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2016
LGR 433 159 592 34 40 6 - 672 139 811
LGIM 308 (22) 286 (1) - - - 285 81 366
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
- LGIM
excluding
Workplace
Savings
(admin
only) 290 - 290 - - - - 290 82 372
-
Workplace
Savings
(admin
only)(3) 18 (22) (4) (1) - - - (5) (1) (6)
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
LGC 214 - 214 - - - - 214 43 257
LGI 317 23 340 (11) 5 (29) (79) 226 91 317
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
- UK and
Other 254 23 277 (11) 5 (29) (57) 185 47 232
- US 63 - 63 - - - (22) 41 44 85
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
Savings 104 (5) 99 4 8 (32) - 79 20 99
General
Insurance 42 - 42 - - - - 42 10 52
Total from
divisions 1,418 155 1,573 26 53 (55) (79) 1,518 384 1,902
Group debt
costs (138) - (138) - - - - (138) (34) (172)
Group
investment
projects
and
expenses (24) - (24) - - - (59) (83) (19) (102)
Adjusted
total 1,256 155 1,411 26 53 (55) (138) 1,297 331 1,628
Kingswood
office
closure
costs(4) - - - - - - (53) (53) (13) (66)
Total 1,256 155 1,411 26 53 (55) (191) 1,244 318 1,562
1. Release from operations includes dividends remitted from LGN of GBP70m
(2015: GBP28m) within the LGI UK and Other line and US of GBP63m (2015:
GBP54m).
2. International and other includes GBP43m (2015: GBP34m) of restructuring
costs (GBP54m before tax) (2015: GBP42m before tax) within the Group
investment projects and expenses line.
3. This represents Workplace Savings admin only and excludes fund management
profits.
4. The Kingswood office closure costs reflect expenditure in relation
to rent and rates, as well as the write-off of previously capitalised
expenditure.
Release from operations for LGR, LGIM, LGI and Savings represents the
expected IFRS surplus generated in the year from the in-force non profit
annuities, workplace savings, protection and savings businesses using
best estimate assumptions. The LGIM release from operations also includes
operating profit after tax from the institutional and retail investment
management businesses. The LGI release from operations also includes
dividends remitted from LGN and LGA and operating profit after tax from
the remaining LGI businesses. The Savings release from operations includes
the shareholders' share of bonuses on with-profits business and operating
profit after tax from the remaining Savings businesses.
New business surplus/strain for LGR, LGIM, LGI and Savings represents
the cost of acquiring new business and setting up prudent reserves in
respect of the new business for UK non profit annuities, workplace savings,
protection and savings, net of tax. The new business surplus and release
from operations for LGR, LGIM, LGI and Savings exclude any capital held
in excess of the prudent reserves from the liability calculation.
Net release from operations for LGR, LGIM, LGI and Savings is defined
as release from operations less new business strain.
Release from operations and net release from operations for LGC and
General Insurance represents the operating profit (net of tax).
During 2016, changes have been made to the organisational structure.
The advised sales and India businesses have been transferred to LGI
from Savings, and the IDOL business has been transferred to LGR from
LGI. Comparatives have been amended accordingly.
See Note 2.02 for more detail on experience variances, changes to valuation
assumptions and non-cash items.
IFRS and Release from Operations Page 27
2.01 Reconciliation of release from operations to operating
profit before tax (continued)
Changes Operating
New Net in Operating profit/
Release business release Exper- valuation Non-cash Inter- profit/ Tax (loss)
from surplus/ from ience assump- items national (loss) expense/ before
and
For the operations(1) (strain) operations variances tions other and after (credit) tax
year ended other(2) tax
31 December GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2015
LGR(4) 374 45 419 13 114 (20) - 526 115 641
LGIM 303 (22) 281 (1) 1 (2) - 279 76 355
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
- LGIM
excluding
Workplace
Savings
(admin
only) 282 - 282 - - - - 282 77 359
-
Workplace
Savings
(admin(3)
only) 21 (22) (1) (1) 1 (2) - (3) (1) (4)
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
LGC 187 - 187 - - - - 187 46 233
LGI(4) 328 25 353 (14) (45) (46) (28) 220 95 315
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
- UK and
Other 274 25 299 (14) (45) (46) (11) 183 49 232
- US 54 - 54 - - - (17) 37 46 83
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
Savings(4) 125 (9) 116 (9) - (23) 2 86 21 107
General
Insurance 41 - 41 - - - - 41 10 51
Total from
divisions 1,358 39 1,397 (11) 70 (91) (26) 1,339 363 1,702
Group debt
costs (122) - (122) - - - - (122) (31) (153)
Group
investment
projects
and
expenses (19) - (19) - - - (50) (69) (17) (86)
Adjusted
total 1,217 39 1,256 (11) 70 (91) (76) 1,148 315 1,463
Kingswood
office
closure
costs - - - - - - (6) (6) (2) (8)
Total 1,217 39 1,256 (11) 70 (91) (82) 1,142 313 1,455
1. Release from operations includes dividends remitted from LGF of GBP1m
and LGN of GBP28m within the LGI UK and Other line and US of GBP54m.
2. International and other includes GBP34m of restructuring costs (GBP42m
before tax) within the Group investment projects and expenses line.
3. This represents Workplace Savings admin only and excludes fund management
profits.
4. LGR includes the IDOL business which was previously reported in LGI,
and LGI includes the advised sales and India businesses which were previously
reflected in Savings. The impact of this reclassification has been to
increase LGR 2015 release from operations by GBP2m, increase Savings
2015 release from operations by GBP6m and reduce LGI 2015 release from
operations by GBP8m.
IFRS and Release from Operations Page 28
2.02 Analysis of LGR, LGI and Savings operating profit
LGR LGI Savings LGR LGI Savings
2016 2016 2016 2015 2015 2015
GBPm GBPm GBPm GBPm GBPm GBPm
Net release from operations 592 340 99 419 353 116
Experience variances
Persistency 2 (2) - 4 5 (2)
Mortality/morbidity(1) 47 (34) - 18 (16) -
Expenses (9) 4 7 - 2 3
Project and development
costs (21) 2 (4) (20) (2) (2)
Other 15 19 1 11 (3) (8)
Total experience variances 34 (11) 4 13 (14) (9)
Changes to valuation assumptions
Persistency(2) - (52) 5 - 48 -
Mortality/morbidity(3) 40 4 - 97 (20) -
Expenses(4) - 53 - 17 27 (2)
Reinsurance modelling(5) - - - - (93) -
Other - - 3 - (7) 2
Total valuation assumption
changes 40 5 8 114 (45) -
Movement in non-cash items
Deferred tax - - 1 - - 2
Utilisation of brought forward
trading losses - - - (25) (6) -
Acquisition expense tax
relief (6) - (27) (3) - (30) (4)
Deferred Acquisition Costs
(DAC)(7) - - (28) - - (54)
Deferred Income Liabilities
(DIL)(7) - - 9 - - 39
Other 6 (2) (11) 5 (10) (6)
Total non-cash movement items 6 (29) (32) (20) (46) (23)
International and other(8) - (79) - - (28) 2
Operating profit after tax 672 226 79 526 220 86
Tax gross up 139 91 20 115 95 21
Operating profit before tax 811 317 99 641 315 107
1. The LGR mortality/morbidity experience variance reflects higher than
expected annuitant deaths experience over 2016. LGI mortality/morbidity
experience variance in 2016 primarily reflects adverse claims experience
on the group protection book of business.
2. The LGI persistency valuation assumption change in 2016 is the result
of a review of prudence within the lapse assumption for level and decreasing
term assurance products.
3. The mortality/morbidity valuation assumption change in LGR primarily
reflects a change in the treatment to historic longevity insurance deals
where future fees in excess of prudent estimates of longevity and expense
experience are now included as an offset to IFRS reserves. The 2015
LGR mortality/morbidity change to valuation assumptions primarily reflected
a change in mortality reserving assumptions in relation to unreported
deaths of deferred annuitants.
4. The LGI expense valuation assumption change is the result of the
reduction in unit costs following recent expense savings actions, together
with a review of the prudence within renewal expenses on our protection
products.
5. The reinsurance modelling for our UK protection business was enhanced
in 2015. Recent reinsurance contracts have been written on a risk premium
basis (as opposed to level premium) and the model change ensured that
for these treaties, sufficient prudence was being held in later years.
The one-off impact reduced operating profit by GBP93m in 2015. This
also deferred a higher proportion of release from operations into the
later years of these reinsurance contracts.
6. Net release from operations for LGI and Savings recognises tax relief
from prior year acquisition expenses, which are spread evenly over seven
years under relevant 'I-E' tax legislation in the period the cash flows
actually occur. In contrast, operating profit typically recognises the
value of these future cash flows in the same period as the underlying
expense as deferred tax amounts. The reconciling amounts arising from
these items are included in the table above. Following the removal of
new retail protection business from the 'I-E' tax regime, and the removal
of commission from new insured savings business under the Retail Distribution
Review at the end of 2012, no material amount of deferred tax assets
arise on new acquisition expenses and the value of these future cash
flows for post-2013 acquisition expenses have been reflected within
net release from operations. The residual prior year acquisition expenses
will run off predictably to 2018.
7. The DAC in Savings represents the amortisation charges offset by
new acquisition costs deferred in the year. The DIL reflects initial
fees on insured savings business which relate to the future provision
of services and are deferred and amortised over the anticipated period
in which these services are provided.
8. LGI Other in 2016 reflects the difference between the dividend (release
from operations) remitted from LGN and LGA of GBP70m and GBP63m respectively
(2015: dividends remitted from LGN of GBP28m, LGF of GBP1m and LGA of
GBP54m) and the LGN, LGA and India operating profit after tax (2015:
LGN, LGF, LGA and India operating profit after tax).
IFRS and Release from Operations Page 29
2.03 LGIM
2016 2015
GBPm GBPm
Investment management revenue 744 694
Investment management expenses (372) (335)
Workplace Savings (admin
only) operating loss(1) (6) (4)
Total LGIM operating profit 366 355
1. This represents Workplace Savings admin only and excludes fund management
profits.
2.04 General Insurance operating profit and combined operating
ratio
2016 2015
GBPm GBPm
General Insurance operating profit(1) 52 51
General Insurance combined operating ratio (%)(2) 89 89
1. The General Insurance operating profit includes the underwriting
result and smoothed investment return.
2. The calculation of the General Insurance combined operating ratio
incorporates claims, commission and expenses as a percentage of net
earned premiums.
2.05 LGC
2016 2015
GBPm GBPm
Direct investments 121 69
Traded portfolio including
treasury operations 136 164
Total LGC operating profit 257 233
2.06 Group investment projects and expenses
2016 2015
GBPm GBPm
Group investment projects and central
expenses (48) (44)
Restructuring costs(1) (54) (42)
Total Group investment projects and expenses (102) (86)
1. Restructuring costs exclude the Kingswood office closure costs which
have been presented separately.
2.07 Investment and other variances
2016 2015
GBPm GBPm
Investment variance(1) 147 (57)
M&A related(2) (102) (57)
Other(3) (32) (5)
Total Investment and
other variances 13 (119)
1. 2016 investment variance is positive, primarily driven by foreign
exchange gains on US dollar assets, the outperformance of equity markets
to expectations and a lack of defaults on the group's bond portfolios,
partially offset by the negative impact of interest rate changes during
the period. The defined benefit pension scheme variance of GBP29m contained
within this line (2015: GBP(15)m) reflects the actuarial gains and losses,
and valuation differences arising on annuity assets held by defined
benefit pension schemes that have been purchased from Legal & General
Assurance Society Limited. A segmental analysis of Investment and other
variances can be found in note 2.09 (a).
2. M&A related includes gains and losses, expenses and intangible amortisation
relating to acquisitions and disposals. 2016 includes the GBP60m net
loss resulting from the classification of Cofunds Plc as held for sale
(GBP64m loss) and the disposal of Suffolk Life (GBP4m gain).(2015: includes
the GBP25m net loss resulting from the disposal of subsidiary and joint
venture investments during the year).
3. Other includes new business start-up costs and other non-investment
related variance items.
IFRS and Release from Operations Page 30
Consolidated Income Statement
For the year ended 31 December 2016
2016 2015
Notes GBPm GBPm
Income
Gross written premiums 10,325 6,321
Outward reinsurance premiums (1,573) (1,603)
Net change in provision for unearned premiums 4 21
Net premiums earned 8,756 4,739
Fees from fund management and investment contracts 1,068 1,139
Investment return 67,824 5,947
Operational income 321 876
Total income 2.09 77,969 12,701
Expenses
Claims and change in insurance liabilities 17,896 5,080
Reinsurance recoveries (2,745) (2,466)
Net claims and change in insurance liabilities 15,151 2,614
Change in provisions for investment contract
liabilities 58,578 5,615
Acquisition costs 793 838
Finance costs 198 186
Other expenses 1,569 1,893
Transfers (from)/to unallocated divisible surplus (187) 141
Total expenses 76,102 11,287
Profit before tax 1,867 1,414
Tax expense attributable to policyholder returns (285) (59)
Profit before tax attributable to equity holders 1,582 1,355
Total tax expense (602) (320)
Tax expense attributable to policyholder returns 285 59
Tax expense attributable to equity holders 2.15 (317) (261)
Profit for the year 1,265 1,094
Attributable to:
Non-controlling interests 2.24 7 19
Equity holders of the company 1,258 1,075
Dividend distributions to equity holders of
the company during the year 2.17 830 701
Dividend distributions to equity holders of
the company proposed after the year end 2.17 616 592
p p
Earnings per share(1) 2.10 21.22 18.16
Diluted earnings per share(1) 2.10 21.13 18.04
1. All earnings per share calculations are based on profit attributable
to equity holders of the company.
IFRS and Release from Operations Page 31
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2016
2016 2015
GBPm GBPm
Profit for the year 1,265 1,094
Items that will not be reclassified subsequently to profit
or loss
Actuarial (losses)/gains on defined benefit pension schemes (138) 47
Tax on actuarial (losses)/gains on defined benefit pension
schemes 17 (11)
Actuarial gains/(losses) on defined benefit pension schemes
transferred to unallocated divisible surplus 51 (17)
Tax on actuarial gains/(losses) on defined benefit pension
schemes transferred to unallocated divisible surplus (6) 4
Total items that will not be reclassified to profit or
loss subsequently (76) 23
Items that may be reclassified subsequently to profit
or loss
Exchange differences on translation of overseas operations 190 25
Net change in financial investments designated as available-for-sale (4) (64)
Tax on net change in financial investments designated
as available-for-sale 1 22
Total items that may be reclassified to profit or loss
subsequently 187 (17)
Other comprehensive income after tax 111 6
Total comprehensive income for the year 1,376 1,100
Total comprehensive income attributable to:
Non-controlling interests 7 19
Equity holders of the company 1,369 1,081
IFRS and Release from Operations Page 32
Consolidated Balance Sheet
As at 31 December 2016
2016 2015
Notes GBPm GBPm
Assets
Goodwill 11 83
Purchased interest in long term businesses and
other intangible assets 155 292
Deferred acquisition costs 2,105 1,887
Investment in associates and joint ventures 283 220
Property, plant and equipment 76 92
Investment property 2.14/3.04 8,150 8,082
Financial investments 2.14/3.04 418,175 354,063
Reinsurers' share of contract liabilities 5,593 4,120
UK deferred tax asset 2.15 5 20
Current tax recoverable 297 236
Other assets 5,022 3,618
Assets of operations classified as held for sale 2.12 2,265 3,409
Cash and cash equivalents 25,717 20,677
Total assets 467,854 396,799
Equity
Share capital 2.18 149 149
Share premium 2.18 981 976
Employee scheme treasury shares (30) (30)
Capital redemption and other reserves 212 89
Retained earnings 5,633 5,220
Attributable to owners of the parent 6,945 6,404
Non-controlling interests 2.24 338 289
Total equity 7,283 6,693
Liabilities
Participating insurance contracts 2.21 5,794 5,618
Participating investment contracts 2.22 5,271 4,912
Unallocated divisible surplus 661 893
Value of in-force non-participating contracts (206) (184)
Participating contract liabilities 11,520 11,239
Non-participating insurance contracts 2.21 60,779 49,754
Non-participating investment contracts 2.22 321,177 278,554
Non-participating contract liabilities 381,956 328,308
Core borrowings 2.19 3,071 3,092
Operational borrowings 2.20 430 536
Provisions 2.27 1,328 1,171
UK deferred tax liabilities 2.15 291 137
Overseas deferred tax liabilities 2.15 522 436
Current tax liabilities 117 95
Payables and other financial liabilities 2.16 37,347 22,709
Other liabilities 594 737
Net asset value attributable to unit holders 21,573 18,277
Liabilities of operations classified as held
for sale 2.12 1,822 3,369
Total liabilities 460,571 390,106
Total equity and liabilities 467,854 396,799
IFRS and Release from Operations Page 33
Consolidated Statement of Changes in Equity
Employee Capital Equity
scheme redemption attributable Non-
Share Share treasury and other Retained to owners controlling Total
of the
capital premium shares reserves(1) earnings parent interests equity
For the year ended GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
31 December 2016
As at 1 January 2016 149 976 (30) 89 5,220 6,404 289 6,693
Profit for the year - - - - 1,258 1,258 7 1,265
Exchange differences
on translation of
overseas operations - - - 190 - 190 - 190
Actuarial losses on
defined benefit
pension schemes - - - - (121) (121) - (121)
Actuarial losses on
defined benefit
pension schemes transferred
to
unallocated divisible
surplus - - - - 45 45 - 45
Net change in financial
investments
designated as
available-for-sale - - - (3) - (3) - (3)
Total comprehensive
income/(expense)
for the year - - - 187 1,182 1,369 7 1,376
Options exercised under
share option
schemes:
- Savings related share
option scheme - 5 - - - 5 - 5
Shares purchased - - (10) - - (10) - (10)
Shares vested - - 10 (33) - (23) - (23)
Employee scheme treasury
shares:
- Value of employee
services - - - 24 - 24 - 24
Share scheme transfers
to retained earnings - - - - 6 6 - 6
Dividends - - - - (830) (830) - (830)
Movement in third party
interests - - - - - - 42 42
Currency translation
differences - - - (55) 55 - - -
As at 31 December 2016 149 981 (30) 212 5,633 6,945 338 7,283
1. Capital redemption and other reserves include Share-based payments
GBP60m (2015: GBP69m), Foreign exchange GBP135m (2015: GBPnil), Capital
redemption GBP17m (2015: GBP17m), Available-for-sale reserves GBP(1)m
(2015: GBP2m) and Hedging reserves GBP1m (2015: GBP1m).
IFRS and Release from Operations Page 34
Consolidated Statement of Changes in Equity (continued)
Employee Capital Equity
scheme redemption attributable Non-
Share Share treasury and other Retained to owners controlling Total
of the
capital premium shares reserves(1) earnings parent interests equity
For the year ended GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
31 December 2015
As at 1 January 2015 149 969 (37) 117 4,830 6,028 275 6,303
Profit for the year - - - - 1,075 1,075 19 1,094
Exchange differences -
on translation of
overseas operations - - - 25 - 25 - 25
Actuarial gains on -
defined benefit
pension schemes - - - - 36 36 - 36
Actuarial gains on
defined benefit
pension schemes transferred
to
unallocated divisible
surplus - - - - (13) (13) - (13)
Net change in financial - -
investments
designated as available-for-sale - - - (42) - (42) - (42)
Total comprehensive
income/(expense)
for the year - - - (17) 1,098 1,081 19 1,100
Options exercised under
share option scheme:
- Savings related share
option scheme - 7 - - - 7 - 7
Shares purchased - - (3) - - (3) - (3)
Shares vested - - 10 (23) - (13) - (13)
Employee scheme treasury -
shares:
- Value of employee
services - - - 26 - 26 - 26
Share scheme transfers
to retained earnings - - - - (21) (21) - (21)
Dividends - - - - (701) (701) - (701)
Movement in third party
interests - - - - - - (5) (5)
Currency translation
differences - - - (14) 14 - - -
As at 31 December 2015 149 976 (30) 89 5,220 6,404 289 6,693
1. Capital redemption and other reserves include Share-based payments
GBP69m, Foreign exchange GBPnil, Capital redemption GBP17m, Available-for-sale
reserves GBP2m and Hedging reserves GBP1m.
IFRS and Release from Operations Page 35
Consolidated Cash Flow Statement
For the year ended 31 December 2016
2016 2015
Notes GBPm GBPm
Cash flows from operating activities
Profit for the year 1,265 1,094
Adjustments for non cash movements in net profit
for the year
Realised and unrealised (gains)/losses on financial
investments and investment properties (53,262) 4,077
Investment income (9,390) (9,760)
Interest expense 198 186
Tax expense 602 320
Other adjustments (45) (70)
Net (increase)/decrease in operational assets
Investments held for trading or designated
as fair value through profit or loss (9,363) 1,007
Investments designated as available-for-sale 246 158
Other assets (2,658) (2,594)
Net increase/(decrease) in operational liabilities
Insurance contracts 12,910 (1,083)
Transfer from unallocated divisible surplus (232) (90)
Investment contracts 39,747 (9,524)
Value of in-force non-participating contracts (22) 24
Other liabilities 17,023 6,645
Cash used in operations (2,981) (9,610)
Interest paid (198) (186)
Interest received 4,863 5,286
Tax paid(1) (424) (244)
Dividends received 4,676 3,931
Net cash flows from/(used in) operating activities 5,936 (823)
Cash flows from investing activities
Net acquisition of plant, equipment and intangibles (45) (24)
Acquisitions(2) - (5)
Disposal of subsidiaries(3) 2.11 (272) (82)
Investment in joint ventures (63) (71)
Net cash flows from investing activities (380) (182)
Cash flows from financing activities
Dividend distributions to ordinary equity holders
of the company during the year 2.17 (830) (701)
Proceeds from issue of ordinary share capital 5 7
Purchase of employee scheme shares (net) - (8)
Proceeds from borrowings 219 697
Repayment of borrowings (342) (527)
Net cash flows used in financing activities (948) (532)
Net increase/(decrease) in cash and cash equivalents 4,608 (1,537)
Exchange gains/(losses) on cash and cash equivalents 182 (106)
Cash and cash equivalents at 1 January (before
reallocation of held for sale cash) 21,066 22,709
Cash and cash equivalents (before reallocation
of held for sale cash) 25,856 21,066
Cash and cash equivalents classified as held
for sale 2.12 (139) (389)
Cash and cash equivalents at 31 December 25,717 20,677
1. Tax comprises UK corporation tax paid of GBP249m (2015: GBP128m),
overseas corporate taxes of GBP16m (2015: GBP36m) and withholding tax
of GBP159m (2015: GBP80m).
2. Net cash flows from acquisitions includes cash paid of GBPnil (2015:
GBP5m) less cash and cash equivalents acquired of GBPnil (2015: GBPnil).
3. Net cash flows from disposals includes cash received of GBP144m (2015:
GBP242m) less cash and cash equivalents disposed of GBP416m (2015: GBP324m).
The group's Consolidated Cash Flow Statement includes all cash and cash
equivalent flows. The closing cash position includes GBP944m (2015:
GBP856m) relating to the with-profit fund policy-holders policyholders
and GBP20,434m (2015: GBP16,116m) relating to unit-linked policyholders.
IFRS and Release from Operations Page 36
2.08 Basis of preparation
The group financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRSs) issued by
the International Accounting Standards Board (IASB) as adopted by
the European Union, and with those parts of the UK Companies Act
2006 applicable to companies reporting under IFRS. The group
financial statements also comply with IFRS and interpretations by
the IFRS Interpretations Committee as issued by the IASB and as
adopted by the European Union. The group financial statements have
been prepared under the historical cost convention, as modified by
the revaluation of land and buildings, available-for-sale financial
assets and financial assets and financial liabilities (including
derivative instruments) at fair value through profit and loss.
The group has selected accounting policies which state fairly
its financial position, financial performance and cash flows for a
reporting period. The accounting policies have been consistently
applied to all years presented.
Financial assets and financial liabilities are disclosed gross
in the Consolidated Balance Sheet unless a legally enforceable
right of offset exists and there is an intention to settle
recognised amounts on a net basis. Income and expenses are not
offset in the Consolidated Income Statement unless required or
permitted by any accounting standard or interpretations by the IFRS
Interpretations Committee.
Foreign currency transactions are translated into the functional
currency using the exchange rate prevailing at the date of the
transactions. The functional currency of the group's foreign
operations is the currency of the primary economic environment in
which the entity operates. The assets and liabilities of all of the
group's foreign operations are translated into sterling, the
group's presentation currency, at the closing rate at the date of
the balance sheet. The income and expenses for each income
statement are translated at average exchange rates. On
consolidation, exchange differences arising from the translation of
the net investment in foreign entities and of borrowings and other
currency instruments designated as hedges of such investments, are
taken to a separate component of shareholders' equity.
Use of estimates
The preparation of the financial statements includes the use of
estimates and assumptions which affect items reported in the
Consolidated Balance Sheet and Income Statement and the disclosure
of contingent assets and liabilities at the date of the financial
statements. Although these estimates are based on management's best
knowledge of current circumstances and future events and actions,
actual results may differ from those estimates, possibly
significantly. This is particularly relevant for the determination
of fair values of investment property and unquoted and illiquid
financial investments and the estimation of deferred acquisition
costs, tax balances and insurance and investment contract
liabilities. The basis of accounting for these areas, and the
significant judgements used in determining them, are outlined in
the respective notes to the group's 2016 Annual Report and
Accounts.
Key technical terms and definitions
The report refers to various key performance indicators,
accounting standards and other technical terms. A comprehensive
list of these definitions is contained within the glossary of the
group's 2016 Annual Report and Accounts.
Tax attributable to policyholders and equity holders
The total tax expense shown in the group's Consolidated Income
Statement includes income tax borne by both policyholders and
shareholders. This has been apportioned between that attributable
to policyholders' returns and equity holders' profits. This
represents the fact that the group's long-term business in the UK
pays tax on policyholder investment return, in addition to the
corporation tax charge charged on shareholder profit. The separate
presentation is intended to provide more relevant information about
the tax that the group pays on the profits that it makes.
For this apportionment, the equity holders' tax on long-term
business is estimated by applying the statutory tax rate to profits
attributed to equity holders. This is considered to approximate the
corporation tax attributable to shareholders as calculated under UK
tax rules. The balance of income tax associated with UK long-term
business is attributed to income tax attributable to policyholders'
returns and approximates the corporation tax attributable to
policyholders as calculated under UK tax rules.
2.09 Segmental analysis
Reportable segments
The group has six reportable segments comprising LGR, LGIM, LGC,
LGI, Savings and General Insurance. Central group expenses and debt
costs are reported separately.
LGR represents worldwide pension risk transfer business
(including longevity insurance), individual retirement and lifetime
mortgages.
The LGIM segment represents institutional and retail investment
management and workplace savings businesses.
LGC represents shareholder assets in direct investments, and
traded and treasury assets.
LGI represents UK retail protection, group protection and
network business, Legal & General Netherlands (LGN) and
protection business written in the USA (LGA). LGI comparatives
include Legal & General France (LGF), which was sold during
2015.
Savings represents business in platforms, SIPPs, mature savings
and with-profits.
The General Insurance segment comprises short-term
protection.
During 2016, the Insurance (excluding General Insurance) and LGA
segments (excluding General Insurance) were combined to create the
new Legal & General Insurance (LGI) segment. General Insurance
is now presented as a separate segment.
During 2016, changes have been made to the organisational
structure. The advised sales and India businesses have transferred
to LGI from Savings, and the IDOL business has been transferred to
LGR from LGI. Comparatives have been amended accordingly.
Transactions between reportable segments are on normal
commercial terms, and are included within the reported
segments.
IFRS and Release from Operations Page 37
2.09 Segmental analysis (continued)
(a) Profit/(loss) for the year
Group
expenses
General and debt
LGR(1) LGIM LGC LGI(1) Savings(1) Insurance costs Total
For the year ended 31 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
December 2016
Operating profit/(loss) 811 366 257 317 99 52 (340) 1,562
Investment and other
variances(2) 36 (32) 162 (123) (51) 16 5 13
Gains attributable to
non-controlling interests - - - - - - 7 7
Profit/(loss) before
tax attributable to
equity holders 847 334 419 194 48 68 (328) 1,582
Tax (expense)/credit
attributable to equity
holders of the company (149) (68) (52) (71) (22) (13) 58 (317)
Profit/(loss) for the
year 698 266 367 123 26 55 (270) 1,265
Group
expenses
General and debt
LGR(1) LGIM LGC LGI(1) Savings(1) Insurance costs Total
For the year ended 31 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
December 2015
Operating profit/(loss) 641 355 233 315 107 51 (247) 1,455
Investment and other
variances(2) 78 (20) (116) (44) 3 (8) (12) (119)
Gains attributable to
non-controlling interests - - - - - - 19 19
Profit/(loss) before
tax attributable to
equity holders 719 335 117 271 110 43 (240) 1,355
Tax (expense)/credit
attributable to equity
holders of the company (131) (74) (9) (93) (16) (8) 70 (261)
Profit/(loss) for the
year 588 261 108 178 94 35 (170) 1,094
1. During 2016, changes have been made to the organisational structure.
The advised sales and India businesses have been transferred to LGI
from Savings, and the IDOL business has been transferred to LGR from
LGI. Comparatives have been amended accordingly. The impact of the reclassification
has been to increase LGR 2015 operating profit by GBP2m and profit before
tax by GBP1m, increase Savings 2015 operating profit by GBP8m and profit
before tax by GBP8m, and reduce Insurance 2015 operating profit by GBP10m
and profit before tax by GBP9m.
2. 2016 Investment and other variances - Savings includes the GBP60m
net loss resulting from the disposal of subsidiaries during the period
(2015: LGI and Savings include the GBP43m loss and GBP18m gain respectively
resulting from the disposal of subsidiary and joint venture investments
during the year).
IFRS and Release from Operations Page 38
2.09 Segmental analysis (continued)
(b) Income
LGC
General and
LGR(1) LGIM LGI(1) Savings(1) Insurance other(2) Total
For the year ended 31 December GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2016
Internal income - 270 - - - (270) -
External income 13,851 49,856 2,237 4,362 326 7,337 77,969
Total income 13,851 50,126 2,237 4,362 326 7,067 77,969
LGC
General and
LGR(1) LGIM LGI(1,3) Savings(1) Insurance other(2) Total
For the year ended 31 December GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2015
Internal income - 267 - - - (267) -
External income 2,554 5,514 2,516 2,473 349 (705) 12,701
Total income 2,554 5,781 2,516 2,473 349 (972) 12,701
1. During 2016, changes have been made to the organisational structure.
The advised sales and India businesses have transferred to LGI from
Savings, and the IDOL business has been transferred to LGR from LGI.
Comparatives have been amended accordingly. The impact of this reclassification
has been to increase LGR 2015 external income by GBP26m, reduce Savings
2015 external income by GBP5m and reduce LGI 2015 external income by
GBP21m.
2. LGC and other includes LGC, inter-segmental eliminations and group
consolidation adjustments.
IFRS and Release from Operations Page 39
2.10 Earnings per share
(a) Earnings per share
Adjusted Adjusted Adjusted Adjusted
Profit Earnings profit earnings Profit Earnings profit earnings
after per share(1) after per share(1,2) after per share(1) after per share(1,2)
tax tax tax tax
2016 2016 2016 2016 2015 2015 2015 2015
GBPm p GBPm p GBPm p GBPm p
Operating profit after
tax 1,244 20.98 1,244 20.98 1,142 19.29 1,142 19.29
Investment and other
variances 14 0.24 72 1.22 (67) (1.13) (42) (0.71)
Earnings per share
based on profit
attributable to equity
holders 1,258 21.22 1,316 22.20 1,075 18.16 1,100 18.58
1. Earnings per share is calculated by dividing profit after tax derived
from continuing operations by the weighted average number of ordinary
shares in issue during the period, excluding employee scheme treasury
shares.
2. Adjusted earnings per share has been calculated after excluding the
net loss after tax, GBP58m, resulting from the disposal of Suffolk Life
and the classification of Cofunds as held for sale (2015: excluding
the GBP25m net loss after tax resulting from the disposal of subsidiary
and joint venture investments).
(b) Diluted earnings per share
Adjusted Adjusted
Number Profit Earnings profit earnings
of shares after per share(1) after per share(1,2)
tax tax
2016 2016 2016 2016 2016
m GBPm p GBPm p
Profit attributable to equity holders of the
company 5,929 1,258 21.22 1,316 22.20
Net shares under options allocable for no further
consideration 24 - (0.09) - (0.09)
Diluted earnings per
share 5,953 1,258 21.13 1,316 22.11
Adjusted Adjusted
Number Profit Earnings profit earnings
of shares after per share(1) after per share(1,2)
tax tax
2015 2015 2015 2015 2015
m GBPm p GBPm p
Profit attributable to equity holders of the
company 5,920 1,075 18.16 1,100 18.58
Net shares under options allocable for no further
consideration 38 - (0.12) - (0.12)
Diluted earnings per
share 5,958 1,075 18.04 1,100 18.46
1. For diluted earnings per share, the weighted average number of ordinary
shares in issue, excluding employee scheme treasury shares, is adjusted
to assume conversion of all potential ordinary shares, such as share
options granted to employees.
2. Adjusted earnings per share has been calculated after excluding the
net loss after tax, GBP58m, resulting from the disposal of Suffolk Life
and the classification of Cofunds as held for sale (2015: excluding
the GBP25m net loss after tax resulting from the disposal of subsidiary
and joint venture investments).
IFRS and Release from Operations Page 40
2.11 Disposals
During 2016, the group made the following disposals:
- Suffolk Life Group Limited was sold to Curtis Banks Group plc
for GBP45m (excluding transaction costs). The carrying value of the
investment was GBP40m, realising a profit on disposal of GBP5m
(excluding transaction costs) reported in operational income in the
Consolidated Income Statement. The disposal of Suffolk Life Group
Limited was not classified as a discontinued operation as it does
not represent a major line of business or geographical segment of
the group.
- The investment in ABI Alpha Limited was sold to a management
buyout led by CBPE Capital with cash proceeds for the group's
investment of GBP29m. The carrying value of the investment was
GBP23m, realising a profit on disposal of GBP6m reported in
operational income in the Consolidated Income Statement. The
majority of the profit on disposal is allocated to the with-profits
fund.
- Air Energi is no longer controlled by the group following its
merger with Swift WWR to create Airswift. The group now holds less
than 50% of Airswift and therefore has classified the investment as
an associate, included in financial investments. The investment has
been revalued to fair value, increasing the carrying value of the
investment by GBP13m which has been reported in operational income
in the Consolidated Income Statement. The majority of the profit on
merger is allocated to the with-profits fund.
- The investment in The Liberation Group was sold to Caledonia
Investments Plc with cash proceeds for the group's investment of
GBP70m. The carrying value of the investment was GBP68m, realising
a profit on disposal of GBP2m reported in operational income in the
Consolidated Income Statement. The majority of the profit on
disposal is allocated to the with-profits fund.
- On 2 December 2016 the group transferred its portfolio of
insurance and investment contracts originated by Legal &
General Deutschland (LGD) to Canada Life Europe (CLAE) via a Part
VII transfer. GBP120m of insurance liabilities together with the
financial assets held to back them were transferred, and no
consideration was received for the transfer. There has been no
impact on profit.
IFRS and Release from Operations Page 41
2.12 Held for sale
In November, the group reached an agreement in principle with Chesnara
plc (Chesnara) to sell Legal & General Netherland Levensvervekering
Maatschappij N.V. (LGN) to Chesnara for EUR160million.
On 1 January 2017, the group completed the disposal of Cofunds Limited
(Cofunds) to Aegon for GBP147.5m, before transaction costs. The sale
included the Investor Portfolio Service (IPS) platform as well as Cofunds'
retail and institutional business.
Accordingly, the assets and liabilities of LGN and Cofunds have been
assessed separately as disposal groups and have been classified as held
for sale as at 31 December 2016. An impairment loss arising on classification
of Cofunds as held for sale of GBP64m is recognised in other expenses
in the Consolidated Balance Sheet. Cofunds forms part of the Savings
segment in note 2.09.
Neither LGN nor Cofunds is considered to be a discontinued operation
as neither represent a major line of business or geographical segment
of the group.
In addition, two investment properties with a combined valuation of
GBP91m have been classified as held for sale as we have entered into
advanced sale negotiations.
2016 2015(1)
GBPm GBPm
Assets classified as held for sale
Purchased interest in long term business and
other intangible assets 85 28
DAC 12 -
Property, plant and
equipment 11 1
Investment property 95 1,140
Financial investments 1,861 1,801
Reinsurers' share of
contract liabilities 1 39
Cash and cash equivalents 139 389
Other assets(2) 62 11
Total assets of the disposal groups 2,266 3,409
Liabilities classified as held for sale
Insurance contract liabilities 1,709 -
Investment contract
liabilities - 3,235
Operational borrowings - 102
Tax liabilities 26 5
Payables and other
financial liabilities 28 10
Other liabilities(2) 147 17
Total liabilities of the disposal groups 1,910 3,369
Total net assets of the disposal groups 356 40
1. At 2015, Suffolk Life Group Limited was classified as held for sale.
2. Included in other assets is GBP1m, and in other liabilities, GBP88m,
which are balances with other group entities which are eliminated on
the Consolidated Balance Sheet.
2.13 Post balance sheet events
On 1 January 2017 the group sold Cofunds Limited to Aegon. The
sale includes the Investor Portfolio Services (IPS) platform as
well as Cofunds' retail and institutional business. The assets and
liabilities of Cofunds Limited have been assessed as a disposal
group and have been classified as held for sale as at 31 December
2016.
IFRS and Release from Operations Page 42
2.14 Financial investments and investment property
2016 2015
GBPm GBPm
Equities 191,025 166,892
Unit trusts 6,969 6,021
Debt securities(1) 204,970 169,720
Accrued interest 1,528 1,456
Derivative assets(2) 13,121 9,509
Loans and receivables 562 465
Financial investments 418,175 354,063
Investment property(3) 8,150 8,082
Total financial investments and investment property 426,325 362,145
1. A detailed analysis of debt securities, which shareholders are directly
exposed to, is disclosed in note 4.06.
2. Derivatives are used to ensure efficient portfolio management, especially
the use of interest rate swaps, inflation swaps, credit default swaps
and foreign exchange forward contracts for asset and liability management.
Derivative assets are shown gross of derivative liabilities and include
GBP8,294m (2015: GBP5,795m) held on behalf of unit linked policyholders.
3. A detailed analysis of investment property, which shareholders are
directly exposed to, is disclosed in note 4.07.
IFRS and Release from Operations Page 43
2.15 Tax
(a) Tax charge in the Consolidated Income Statement
The tax attributable to equity holders differs from the tax calculated
at the standard UK corporation tax rate as follows:
2016 2015
GBPm GBPm
Profit before tax attributable
to equity holders 1,582 1,355
Tax calculated at 20.00% (2015:
20.25%) 316 274
Adjusted for the effects
of:
Recurring reconciling
items:
Income not subject to tax (12) (11)
Higher/(lower) rate of tax
on profits taxed overseas 7 16
Non-deductible expenses/(additional
allowances) 4 (8)
Differences between taxable and accounting investment
gains (11) (3)
Non-recurring reconciling
items:
Income not subject to tax (1) -
Non-deductible expenses(1) 17 4
Differences between taxable and accounting investment
gains(2) (14) (7)
Adjustments in respect of prior years 13 (5)
Impact of reduction in UK corporate tax rate to 17%
from 2020 on deferred tax balances(3) (2) 1
Tax attributable to
equity holders 317 261
Equity holders' effective
tax rate(4) 20.0% 19.3%
1. Includes costs relating to M&A activity which are non-deductible
for tax purposes.
2. GBP14m relates to a deferred tax asset recognised on losses crystallised
in the year.
3. Following the 2016 Finance Act, the rate of corporation tax will
reduce progressively to 17% by 1 April 2020. The 19% rate will apply
from 1 April 2017 and the 17% rate from 1 April 2020 onwards. The enacted
rates of 20-17% have been used in the calculation of UK deferred tax
assets and liabilities.
4. Equity holders' effective tax rate is calculated by dividing the
tax attributable to equity holders over profit before tax attributable
to equity holders. Refer to note 2.08 for detail on the methodology
of the split of policyholder and equity holders' tax.
IFRS and Release from Operations Page 44
2.15 Tax
(b) Deferred tax
2016 2015
Deferred tax (liabilities)/assets GBPm GBPm
Deferred acquisition expenses (429) (359)
----- -----
- UK (45) (51)
- Overseas (384) (308)
----- -----
Difference between the tax and accounting value of insurance
contracts (286) (324)
----- -----
- UK (123) (83)
- Overseas (163) (241)
----- -----
Realised and unrealised gains on investments (255) (154)
Excess of depreciation over capital allowances 15 18
Excess expenses(1) 49 74
Accounting provisions and other (51) (19)
Trading losses(2) 80 165
Pension fund deficit 82 72
Purchased interest in long-term business (13) (26)
=================================================================== ===== =====
Net deferred tax liabilities (808) (553)
Presented on the Consolidated Balance
Sheet as:
- UK deferred tax asset(3) 5 20
- UK deferred tax liability(3) (291) (137)
- Overseas deferred tax liability(4) (522) (436)
1. The reduction in the UK deferred tax asset on excess expenses reflects
the unwind of the spread acquisition expenses.
2. Trading losses include UK trade and US operating losses of GBP5m
(2015: GBP6m) and GBP75m (2015: GBP159m) respectively. The reduction
in the deferred tax asset primarily reflects utilisation of brought
forward US operating losses against US profits.
3. On the Consolidated Balance Sheet, the net UK deferred tax liability
has been split between an asset of GBP5m and a liability of GBP291m
where the relevant items cannot be offset.
4. Overseas deferred tax liability is wholly comprised of US balances
as at 31 December 2016 (2015: US GBP424m; LGN GBP12m).
IFRS and Release from Operations Page 45
2.16 Payables and other financial liabilities
2016 2015
GBPm GBPm
Derivative liabilities 9,014 8,047
Repurchase agreements(1) 23,163 13,343
Other(2) 5,170 1,319
Payables and other financial
liabilities 37,347 22,709
Due within 12 months 34,517 20,027
Due after 12 months 2,830 2,682
1. The repurchase agreements are presented gross, however they and their
related assets are subject to master netting arrangements.
2. Other financial liabilities include obligations in respect of collateral
received from derivative contracts of GBP2.7bn (2015: GBP0.1bn). Other
also includes the present value of future commission costs which have
contingent settlement provisions of GBP177m (2015: GBP175m).
Fair value hierarchy
Amortised
Total Level Level Level cost
1 2 3
As at 31 December 2016 GBPm GBPm GBPm GBPm GBPm
Derivative liabilities 9,014 884 8,130 - -
Repurchase agreements 23,163 - - - 23,163
Other 5,170 806 8 177 4,179
Payables and other financial
liabilities 37,347 1,690 8,138 177 27,342
Amortised
Total Level Level Level cost
1 2 3
As at 31 December 2015 GBPm GBPm GBPm GBPm GBPm
Derivative liabilities 8,047 1,451 6,596 - -
Repurchase agreements 13,343 - - - 13,343
Other 1,319 5 12 175 1,127
Payables and other financial
liabilities 22,709 1,456 6,608 175 14,470
Future commission costs are modelled using expected cash flows, incorporating
expected future persistency. They have therefore been classified as
level 3 liabilities. The entire movement in the balance has been reflected
in the Consolidated Income Statement during the year. A reasonably possible
alternative persistency assumption would have the effect of increasing
the liability by GBP5m (2015: GBP6m).
Significant transfers between levels
There have been no significant transfers between levels 1, 2 and 3 for
the year ended 31 December 2016 (2015: no significant transfers between
levels 1, 2 and 3).
IFRS and Release from Operations Page 46
2.17 Dividends
Per Per
Dividend share(1) Dividend share(1)
2016 2016 2015 2015
GBPm p GBPm p
Ordinary share dividends paid in the year:
- Prior year final
dividend 592 9.95 496 8.35
- Current year interim
dividend 238 4.00 205 3.45
830 13.95 701 11.80
Ordinary share dividend
proposed(2) 616 10.35 592 9.95
1. The dividend per share calculation is based on the number of equity
shares registered on the ex-dividend date.
2. The dividend proposed is not included as a liability in the Consolidated
Balance Sheet.
2.18 Share capital
(i) Share capital and share premium
2016 2015
Number 2016 Number 2015
of of
Authorised share capital shares GBPm shares GBPm
At 31 December: ordinary shares
of 2.5p each 9,200,000,000 230 9,200,000,000 230
Share Share
Number capital premium
of
Issued share capital, shares GBPm GBPm
fully paid
As at 1 January 2016 5,948,788,480 149 976
Options exercised under share option schemes:
- Savings related share
option scheme 5,867,986 - 5
As at 31 December 2016 5,954,656,466 149 981
Share Share
Number capital premium
of
Issued share capital, shares GBPm GBPm
fully paid
As at 1 January 2015 5,942,070,229 149 969
Options exercised under share option schemes:
- Savings related share
option scheme 6,718,251 - 7
As at 31 December 2015 5,948,788,480 149 976
There is one class of ordinary shares of 2.5p each. All shares issued
carry equal voting rights.
The holders of the company's ordinary shares are entitled to receive
dividends as declared and are entitled to one vote per share at shareholder
meetings of the company.
IFRS and Release from Operations Page 47
2.19 Core Borrowings
Carrying Fair Carrying Fair
amount value amount value
2016 2016 2015 2015
GBPm GBPm GBPm GBPm
Subordinated borrowings
6.385% Sterling perpetual
capital securities (Tier
1) 615 609 637 631
5.875% Sterling undated subordinated
notes (Tier 2) 411 418 413 426
10% Sterling subordinated
notes 2041 (Tier 2) 310 403 310 398
5.5% Sterling subordinated
notes 2064 (Tier 2) 589 603 589 570
5.375% Sterling subordinated
notes 2045 (Tier 2) 602 627 602 611
Client fund holdings of group
debt(1) (31) (31) (26) (27)
Total subordinated borrowings 2,496 2,629 2,525 2,609
Senior borrowings
Sterling medium term notes
2031-2041 609 845 609 779
Client fund holdings of group
debt(1) (34) (34) (42) (54)
Total senior borrowings 575 811 567 725
Total core borrowings 3,071 3,440 3,092 3,334
1. GBP65m (2015: GBP68m) of the group's subordinated and senior borrowings
are currently held by Legal & General customers through unit linked
products. These borrowings are shown as a deduction from total core
borrowings in the table above.
All of the group's core borrowings are measured using amortised cost.
The presented fair values of the group's core borrowings reflect quoted
prices in active markets and they are classified as level 1 in the fair
value hierarchy.
Subordinated borrowings
6.385% Sterling perpetual capital securities
In 2007, Legal & General Group Plc issued GBP600m of 6.385%
Sterling perpetual capital securities. These securities are
callable at par on 2 May 2017 and every three months thereafter. If
not called, the coupon from 2 May 2017 will be reset to three month
LIBOR plus 1.93% pa. For Solvency II purposes these securities are
treated as tier 1 own funds.
5.875% Sterling undated subordinated notes
In 2004, Legal & General Group Plc issued GBP400m of 5.875%
Sterling undated subordinated notes. These notes are callable at
par on 1 April 2019 and every five years thereafter. If not called,
the coupon from 1 April 2019 will be reset to the prevailing five
year benchmark gilt yield plus 2.33% pa. These notes are treated as
tier 2 own funds for Solvency II purposes.
10% Sterling subordinated notes 2041
In 2009, Legal & General Group Plc issued GBP300m of 10%
dated subordinated notes. The notes are callable at par on 23 July
2021 and every five years thereafter. If not called, the coupon
from 23 July 2021 will be reset to the prevailing five year
benchmark gilt yield plus 9.325% pa. These notes mature on 23 July
2041. They are treated as tier 2 own funds for Solvency II
purposes.
5.5% Sterling subordinated notes 2064
In 2014, Legal & General Group Plc issued GBP600m of 5.5%
dated subordinated notes. The notes are callable at par on 27 June
2044 and every five years thereafter. If not called, the coupon
from 27 June 2044 will be reset to the prevailing five year
benchmark gilt yield plus 3.17% pa. These notes mature on 27 June
2064. They are treated as tier 2 own funds for Solvency II
purposes.
5.375% Sterling subordinated notes 2045
On 27 October 2015, Legal & General Group Plc issued GBP600m
of 5.375% dated subordinated notes. The notes are callable at par
on 27 October 2025 and every five years thereafter. If not called,
the coupon from 27 October 2025 will be reset to the prevailing
five year benchmark gilt yield plus 4.58% pa. These notes mature on
27 October 2045. They are treated as tier 2 own funds for Solvency
II purposes.
IFRS and Release from Operations Page 48
2.20 Operational borrowings
Carrying Fair Carrying Fair
amount value amount value
2016 2016 2015 2015
GBPm GBPm GBPm GBPm
Short term operational borrowings
Euro Commercial paper 216 216 15 15
Bank loans and overdrafts 6 6 2 2
Total short term operational borrowings 222 222 17 17
Non recourse borrowings
US Dollar Triple X securitisation
2037 - - 302 258
Suffolk Life unit linked - - - -
borrowings(1)
LGV 6/LGV 7 Private Equity Fund Limited Partnership - - 98 98
Consolidated Property Limited Partnerships 208 208 184 184
Total non recourse borrowings 208 208 584 540
Group holding of operational
borrowings(2) - - (65) (56)
Total operational borrowings 430 430 536 501
1. On 25 May 2016, the group sold Suffolk Life Group Limited to Curtis
Banks Group. At 2015, the Suffolk Life unit linked borrowings were transferred
to held for sale, refer to note 2.12.
2. Group investments in operational borrowings have been eliminated
from the Consolidated Balance Sheet.
The presented fair values of the group's operational borrowings
reflect observable market information and have been classified as
level 2 in the fair value hierarchy.
Short term operational borrowings
Short term assets available at the holding company level
exceeded the amount of the non-unit linked short term operational
borrowings of GBP216m (2015: GBP15m). Short term operational
borrowings comprise Euro Commercial paper, bank loans and
overdrafts.
Non recourse borrowings
US Dollar Triple X securitisation 2037
In 2006, a subsidiary of LGA issued US$450m of non recourse debt
in the US capital markets to meet the Triple X reserve requirements
of part of the US term insurance written after 2005 and 2006. It
was secured on the cash flows related to that tranche of business.
On 15 June 2016, this securitisation was redeemed at par.
LGV 6/LGV 7 Private Equity Fund Limited Partnerships
These borrowings were non recourse bank borrowings.
Consolidated Property Limited Partnerships
These borrowings are non recourse bank borrowings.
Syndicated credit facility
As at 31 December 2016, the group had in place a GBP1.00bn
syndicated committed revolving credit facility provided by a number
of its key relationship banks, maturing in December 2021. No
amounts were outstanding at 31 December 2016.
IFRS and Release from Operations Page 49
2.21 Insurance contract liabilities
(a) Analysis of insurance contract liabilities
Re- Re-
Gross insurance Gross insurance
2016 2016 2015 2015
Notes GBPm GBPm GBPm GBPm
Participating insurance contracts 2.21(b)(iii) 5,794 (1) 5,618 (1)
Non-participating insurance
contracts 2.21(c)(iv) 60,511 (5,297) 49,470 (3,861)
General insurance contracts 2.21(v) 268 (9) 284 (8)
Insurance contract liabilities 66,573 (5,307) 55,372 (3,870)
During the year, the group continued utilising prospective reinsurance
arrangements which resulted in a profit of GBP535m (2015: GBP503m).
This profit has been reflected in the Consolidated Income Statement
for the year and arises from new reinsurance arrangements or the reinsurance
of new business under existing arrangements.
(b) Movement in participating insurance contract liabilities
Re- Re-
Gross insurance Gross insurance
2016 2016 2015 2015
GBPm GBPm GBPm GBPm
As at 1 January 5,618 (1) 6,579 (1)
New liabilities in the year 40 - 52 -
Liabilities discharged in
the year (749) - (977) -
Unwinding of discount rates 27 - 40 -
Effect of change in non-economic
assumptions (3) - 5 -
Effect of change in economic
assumptions 642 - 81 -
Disposals(1) - - (171) -
Modelling and methodology
changes 202 - - -
Other 17 - 9 -
As at 31 December 5,794 (1) 5,618 (1)
1. Reflects the disposal of Legal & General France during 2015.
(c) Movement in non-participating insurance contract
liabilities
Re- Re-
Gross insurance Gross insurance
2016 2016 2015 2015
GBPm GBPm GBPm GBPm
As at 1 January 49,470 (3,861) 49,589 (2,587)
New liabilities in the year 6,273 (613) 2,866 (768)
Liabilities discharged in
the year (2,890) 86 (2,744) (39)
Unwinding of discount rates 1,574 (129) 1,451 (93)
Effect of change in non-economic
assumptions 51 (43) (384) 157
Effect of change in economic
assumptions 6,870 (546) (1,335) (513)
Foreign exchange adjustments 795 (66) 27 (18)
Transfer of liabilities classified
as held for sale (1,709) 1 - -
Modelling and methodology
changes 61 (127) - -
Other 16 1 - -
As at 31 December 60,511 (5,297) 49,470 (3,861)
IFRS and Release from Operations Page 50
2.22 Investment contract liabilities
(a) Analysis of investment contract liabilities
Re- Re-
Gross insurance Gross insurance
2016 2016 2015 2015
Note GBPm GBPm GBPm GBPm
Participating investment
contracts 5,271 - 4,912 -
Non-participating investment
contracts 321,177 (286) 278,554 (250)
Investment contract
liabilities 2.22(b) 326,448 (286) 283,466 (250)
(b) Movement in investment contract liabilities
Re- Re-
Gross insurance Gross insurance
2016 2016 2015 2015
GBPm GBPm GBPm GBPm
As at 1 January 283,466 (250) 296,225 (310)
Reserves in respect of new business 27,832 (27) 37,639 (598)
Amounts paid on surrenders and
maturities during the year (43,217) 35 (46,557) 164
Investment return and related
benefits 58,622 (44) 5,160 455
Management charges (251) - (303) -
Foreign exchange adjustments - - (162) -
Disposals(1) - - (5,321) -
Transfer to held for
sale - (3,235) 39
Other (4) - 20 -
As at 31 December 326,448 (286) 283,466 (250)
1. Reflects the disposal of Legal & General France and Legal & General
International (Ireland) during 2015.
IFRS and Release from Operations Page 51
2.23 IFRS sensitivity analysis
Impact Impact
on on
pre-tax Impact pre-tax Impact
on on
group group group group
profit equity profit equity
net of net of net of net of
re- re- re- re-
insurance insurance insurance insurance
2016 2016 2015 2015
GBPm GBPm GBPm GBPm
Economic sensitivity
Long-term insurance
100bps point increase
in interest rates 173 42 48 (36)
100bps point decrease
in interest rates (280) (120) (168) (49)
100bps point increase in long term
inflation expectations (90) (72) (38) (31)
Credit spread widens by 100bps with no change
in expected defaults (19) (100) (102) (138)
10% decrease in listed
equities (127) (164) (124) (103)
10% fall in property
values (116) (102) (81) (65)
10bps increase in credit
default assumption (426) (339) (324) (258)
10bps decrease in credit
default assumption 437 348 366 292
Non-economic sensitivity
Long-term insurance
1% decrease in annuitant
mortality (200) (202) (132) (105)
5% increase in assurance
mortality (62) (47) (64) (49)
General insurance
Single storm event with 1
in 200 year probability (62) (50) (67) (54)
Subsidence event - worst
claims ratio in last 30 years (61) (49) (72) (57)
The table shows the impacts on group pre-tax profit and equity,
net of reinsurance, under each sensitivity scenario. The
shareholders' share of with-profit bonus declared in the year is
relatively insensitive to market movements due to the smoothing
policies applied.
The interest rate sensitivity assumes a 100bps change in the
gross redemption yield on fixed interest securities together with a
100bps change in the real yields on variable securities. For the UK
with-profit funds, valuation interest rates are assumed to move in
line with market yields adjusted to allow for the impact of PRA
regulations. The interest rate sensitivities reflect the impact of
the regulatory restrictions on the reinvestment rate used to value
the liabilities of the long term business. No yield floors have
been applied in the estimation of the stresses, despite the current
low interest rate environment.
Interest rate and inflation expectation have historically shown
positive correlation and have therefore been presented next to each
other.
The inflation stress adopted is a 100bps pa increase in
inflation resulting in a 100bps pa reduction in real yield and no
change to the nominal yield. In addition the expense inflation rate
is increased by 100bps pa.
In the sensitivity for credit spreads, corporate bond yields
have increased by 100bps, gilt and approved security yields are
unchanged, and there has been no adjustment to the default
assumptions.
The equity stress is a 10% fall in listed equity market values.
The property stress adopted is a 10% fall in property market value.
Rental income is assumed to be unchanged; however the vacant
possession value is stressed down by 10% in line with the market
value stress. Where property is being used to back liabilities, the
valuation interest rate used to place a value on the liabilities
moves with the implied change in property yields.
The annuitant mortality stress is a 1% reduction in the
mortality rates for immediate and deferred annuitants with no
change to the mortality improvement rates. The assurance mortality
stress represents an increase in mortality/morbidity rates for
assurance contracts by 5%.
The credit default stress assumes a +/-10bps stress to the
current credit default assumption for unapproved corporate bonds
which will have an impact on the valuation interest rates used to
discount liabilities. The credit default assumption is set based on
the credit rating of the individual bonds in the asset portfolio
and their outstanding term using Moody's global credit default
rates.
For any single event with claims in excess of GBP30m (2015:
GBP30m) but less than GBP509m (2015: GBP496m) the ultimate cost to
Legal & General Insurance Limited would be GBP30m plus 50% of
the GBP5m XS GBP30m layer (2015: GBP30m plus 50% of the GBP5m XS
GBP30m layer) plus the cost of the reinsurance reinstatement
premium. The ultimate cost to the group is greater as a proportion
of the catastrophe reinsurance cover is placed with Legal &
General Assurance Society Limited, which is exposed to 75% of
claims between GBP35m and GBP100m, 75% of claims between GBP100m
and GBP250m and 45% of claims between GBP250m and GBP478m. The
impact of a 1 in 500 year modelled windstorm and coastal flood
event would exceed the upper limit of the catastrophe cover by
approximately GBP280m (2015: GBP270m), with an estimated total cost
to Legal & General Insurance Limited of GBP335m (2015: GBP330m)
and to the group of GBP590m (2015: GBP563m).
The above sensitivity analyses do not reflect management actions
which could be taken to reduce the impacts. The group seeks to
actively manage its asset and liability position. A change in
market conditions may lead to changes in the asset allocation or
charging structure which may have a more, or less, significant
impact on the value of the liabilities. The analyses also ignore
any second order effects of the assumption change, including the
potential impact on the group asset and liability position and any
second order tax effects. In calculating the alternative values,
all other assumptions are left unchanged, though in practice, items
may be correlated. The sensitivity of the profit and equity to
changes in assumptions may not be linear. These results should not
be extrapolated to changes of a much larger order, which could be
significantly more or less than the amounts shown above.
IFRS and Release from Operations Page 52
2.24 Non-controlling interests
Non-controlling interests represent third party interests in
direct equity investments as well as investments in private equity
and property investment vehicles which are consolidated in the
group's results. The majority of the non-controlling interests in
2016 are in relation to investments in the Leisure Fund Unit Trust,
the Performance Retail Unit Trust, the Legal & General UK
Property Ungeared Fund Limited Partnership, and Thorpe Park
Developments Limited.
2.25 Foreign exchange rates
Principal rates of exchange
used for translation are:
Period end exchange At 31.12.15
rates At 31.12.16
United States Dollar 1.24 1.47
Euro 1.17 1.36
01.01.16 01.01.15
- -
Average exchange rates 31.12.16 31.12.15
United States Dollar 1.36 1.53
Euro 1.22 1.38
2.26 Related party transactions
There were no material transactions between key management and the Legal
& General group of companies during the period. All transactions between
the group and its key management are on commercial terms which are no
more favourable than those available to employees in general. Contributions
to the post-employment defined benefit plans were GBP75m (2015: GBP93m)
for all employees.
At 31 December 2016 and 31 December 2015 there were no loans outstanding
to officers of the company.
Key management personnel
compensation
The aggregate compensation for key management personnel, including executive
and non-executive directors, is as follows:
2016 2015
GBPm GBPm
Salaries 9 10
Social security costs 2 2
Post-employment benefits - 1
Share-based incentive
awards 5 5
Key management personnel
compensation 16 18
Number of key management
personnel 15 16
IFRS and Release from Operations Page 53
2.27 Provisions
(a) Analysis of provisions
2016 2015
GBPm GBPm
Retirement benefit
obligations 1,239 1,131
Other provisions 89 40
1,328 1,171
(b) Retirement benefit obligations
Fund and Fund and
Scheme Overseas Scheme Overseas
2016 2016 2015 2015
GBPm GBPm GBPm GBPm
Gross pension obligations included in provisions (1,234) (5) (1,126) (5)
Annuity obligations insured by Society 779 - 746 -
Gross defined benefit pension deficit (455) (5) (380) (5)
Deferred tax on defined benefit pension deficit 81 1 72 -
Net defined benefit pension deficit (374) (4) (308) (5)
The Legal & General Group UK Pension and Assurance Fund and
the Legal & General Group UK Senior Pension Scheme are defined
benefit pension arrangements and account for all UK and the
majority of worldwide assets of, and contributions to, such
arrangements. The schemes were closed to future accrual on 31
December 2015. At 31 December 2016, the combined after tax deficit
arising from these arrangements (net of annuity obligations insured
by Society) has been estimated at GBP374m (2015: GBP308m). These
amounts have been recognised in the financial statements with
GBP236m charged against shareholder equity (2015: GBP194m) and
GBP138m against the unallocated divisible surplus (2015:
GBP114m).
2.28 Contingent liabilities, guarantees and indemnities
Provision for the liabilities arising under contracts with
policyholders is based on certain assumptions. The variance between
actual experience from that assumed may result in those liabilities
differing from the provisions made for them. Liabilities may also
arise in respect of claims relating to the interpretation of
policyholder contracts, or the circumstances in which policyholders
have entered into them. The extent of these liabilities is
influenced by a number of factors including the actions and
requirements of the PRA, FCA, ombudsman rulings, industry
compensation schemes and court judgments.
Various group companies receive claims and become involved in
actual or threatened litigation and regulatory issues from time to
time. The relevant members of the group ensure that they make
prudent provision as and when circumstances calling for such
provision become clear, and that each has adequate capital and
reserves to meet reasonably foreseeable eventualities. The
provisions made are regularly reviewed. It is not possible to
predict, with certainty, the extent and the timing of the financial
impact of these claims, litigation or issues.
In 1975, Legal & General Assurance Society Limited (the
Society) was required by the Institute of London Underwriters (ILU)
to execute the ILU form of guarantee in respect of policies issued
through the ILU's Policy Signing Office on behalf of NRG Victory
Reinsurance Company Ltd (Victory), a company which was then a
subsidiary of the Society. In 1990, Nederlandse Reassurantie Groep
Holding NV (the assets and liabilities of which have since been
assumed by Nederlandse Reassurantie Groep NV under a statutory
merger in the Netherlands) acquired Victory and provided an
indemnity to the Society against any liability the Society may have
as a result of the ILU's requirement, and the ILU agreed that its
requirement of the Society would not apply to policies written or
renewed after the acquisition. Nederlandse Reassurantie Groep NV is
now owned by Columbia Insurance Company, a subsidiary of Berkshire
Hathaway Inc. Whether the Society has any liability as a result of
the ILU's requirement and, if so, the amount of its potential
liability is uncertain. The Society has made no payment or
provision in respect of this matter.
Group companies have given warranties, indemnities and
guarantees as a normal part of their business and operating
activities or in relation to capital market transactions or
corporate disposals. Legal & General Group Plc has provided
indemnities and guarantees in respect of the liabilities of group
companies in support of their business activities including Pension
Protection Fund compliant guarantees in respect of certain group
companies' liabilities under the group pension fund and scheme.
LGAS has provided indemnities, a liquidity and expense risk
agreement, a deed of support and a cash and securities liquidity
facility in respect of the liabilities of group companies to
facilitate the group's matching adjustment reorganisation pursuant
to Solvency II.
IFRS and Release from Operations Page 54
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Asset and premium flows Page 55
3.01 Legal & General investment management total assets
Active
fixed Solu- Real Active Total Advisory Total
For the year Index income tions(1) assets equities AUM assets assets
ended 31 December GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
2016
At 1 January 2016 274.3 106.8 338.2 18.3 8.5 746.1 10.5 756.6
External inflows(7) 35.2 10.8 19.9 1.4 - 67.3 - 67.3
--------
External outflows(7) (45.0) (6.5) (12.4) (1.2) (0.2) (65.3) - (65.3)
--------
Overlay/advisory
net flows - - 27.2 - - 27.2 (5.4) 21.8
External net flows(3) (9.8) 4.3 34.7 0.2 (0.2) 29.2 (5.4) 23.8
Internal net flows (0.3) 1.5 - 0.7 0.1 2.0 - 2.0
Total net flows (10.1) 5.8 34.7 0.9 (0.1) 31.2 (5.4) 25.8
Cash management
movements(5) - (0.7) - - - (0.7) - (0.7)
Market and other
movements(3,7) 55.6 22.9 39.0 0.4 (0.3) 117.6 2.7 120.3
At December 2016(6) 319.8 134.8 411.9 19.6 8.1 894.2 7.8 902.0
Assets attributable
to:
External 796.7 7.8 804.5
Internal 97.5 - 97.5
Assets attributable
to:
UK 716.8 - 716.8
International 177.4 7.8 185.2
Active
fixed Solu- Real Active Total Advisory Total
For the year ended Index income tions(1) assets equities AUM assets assets
31 December 2015 GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
At 1 January 2015 274.8 102.9 293.3 14.5 8.2 693.7 14.8 708.5
External inflows(2,7) 33.4 12.0 23.1 1.6 - 70.1 70.1
--------
External outflows(7) (38.8) (4.3) (6.6) (0.9) - (50.6) (50.6)
Overlay/advisory
net flows - - 18.2 - - 18.2 (4.6) 13.6
External net flows(3) (5.4) 7.7 34.7 0.7 - 37.7 (4.6) 33.1
Internal net flows (0.7) (1.9) - 0.9 (0.4) (2.1) - (2.1)
Disposal of LGF(4) - (2.3) - - - (2.3) - (2.3)
Total net flows (6.1) 3.5 34.7 1.6 (0.4) 33.3 (4.6) 28.7
Cash management
movements(5) - 0.8 - - - 0.8 - 0.8
Market and other
movements(3,7) 5.6 (0.4) 10.2 2.2 0.7 18.3 0.3 18.6
At 31 December 2015(6) 274.3 106.8 338.2 18.3 8.5 746.1 10.5 756.6
Assets attributable
to:
External 661.0 10.5 671.5
Internal 85.1 - 85.1
Assets attributable
to:
UK 623.7 - 623.7
International 122.4 10.5 132.9
1. Solutions include liability driven investments, multi-asset funds
and included GBP251.8bn at 31 December 2016 (31 December 2015: GBP226.2bn)
of derivative notionals associated with the Solutions business.
2. In 2015 Solutions external inflows include GBP11.7bn of assets associated
with the transfer of National Grid UK Pension Scheme after the purchase
of their asset manager Aerion Fund Management.
3. External net flows exclude movements in short-term solutions assets,
with maturity as determined by client agreements and are subject to
a higher degree of variability. The total value of these assets at 31
December 2016 was GBP52.6bn (31 December 2015: GBP59.9bn), and the movement
in these assets is included in market and other movements for Solutions
assets.
4. On 31 December 2015, the group sold Legal & General Holdings (France)
S.A. to APICIL Prévoyance.
5. Cash management movements include external holdings in money market
funds and other cash mandates held for clients' liquidity management
purposes.
6. Total assets under management have been reconciled to the financial
investments and investment property held on the Consolidated Balance
Sheet in note 3.04.
7. Switches between asset classes are included in the gross inflows
and outflows, and moved out of Market and other movements. 2015 has
been restated for full comparative purposes.
Asset and premium flows Page 56
3.02 Legal & General investment management total assets half
yearly progression
Active
fixed Solu- Real Active Total Advisory Total
For the year ended Index income tions(1) assets equities AUM assets assets
31 December 2016 GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
At 1 January 2016 274.3 106.8 338.2 18.3 8.5 746.1 10.5 756.6
External inflows(4) 17.6 4.8 9.3 0.8 - 32.5 - 32.5
--------
External outflows(4) (20.0) (2.2) (6.6) (0.7) (0.1) (29.6) - (29.6)
Overlay/ advisory
net flows - - 6.7 - - 6.7 (0.3) 6.4
External net flows(2) (2.4) 2.6 9.4 0.1 (0.1) 9.6 (0.3) 9.3
Internal net flows (0.4) 0.7 (0.1) 0.1 - 0.3 - 0.3
Total net flows (2.8) 3.3 9.3 0.2 (0.1) 9.9 (0.3) 9.6
Cash management
movements(3) - (0.6) - - - (0.6) - (0.6)
Market and other
movements(4) 28.9 16.3 41.6 (0.1) (0.6) 86.1 1.4 87.5
At 30 June 2016 300.4 125.8 389.1 18.4 7.8 841.5 11.6 853.1
External inflows(4) 17.6 6.0 10.6 0.6 - 34.8 - 34.8
--------
External outflows(4) (25.0) (4.3) (5.8) (0.5) (0.1) (35.7) - (35.7)
--------
Overlay / advisory
net flows - - 20.5 - - 20.5 (5.1) 15.4
External net flows(2) (7.4) 1.7 25.3 0.1 (0.1) 19.6 (5.1) 14.5
Internal net flows 0.1 0.8 0.1 0.6 0.1 1.7 - 1.7
Total net flows (7.3) 2.5 25.4 0.7 - 21.3 (5.1) 16.2
Cash management
movements(3) - (0.1) - - - (0.1) - (0.1)
Market and other
movements(4) 26.7 6.6 (2.6) 0.5 0.3 31.5 1.3 32.8
At 31 December 2016 319.8 134.8 411.9 19.6 8.1 894.2 7.8 902.0
1. Solutions include liability driven investments, multi-asset funds,
and include GBP251.8bn at 31 December 2016 (30 June 2016: GBP244.0bn)
of derivative notionals associated with the Solutions business.
2. External net flows exclude movements in short term solutions assets,
with maturity as determined by client agreements and are subject to
a higher degree of variability. The total value of these assets at 31
December 2016 was GBP52.6bn (30 June 2016: GBP71.0bn) and the movement
in these assets is included in market and other movements for Solutions
assets.
3. Cash management movements include external holdings in money market
funds and other cash mandates held for clients' liquidity management
purposes.
4. Switches between asset classes are included in the gross inflows
and outflows, and moved out of Market and other movements.
Asset and premium flows Page 57
3.02 Legal & General investment management total assets half
yearly progression
Active
fixed Solu- Real Active Total Advisory Total
For the year ended Index income tions(1) assets equities AUM assets assets
31 December 2015 GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
At 1 January 2015 274.8 102.9 293.3 14.5 8.2 693.7 14.8 708.5
--------
External inflows(7) 15.9 5.3 8.9 0.8 - 30.9 - 30.9
--------
External outflows(7) (22.7) (2.5) (3.4) (0.3) - (28.9) - (28.9)
--------
Overlay/ advisory
net flows - - 11.8 - - 11.8 (3.5) 8.3
External net flows(3) (6.8) 2.8 17.3 0.5 - 13.8 (3.5) 10.3
Internal net flows (0.3) (0.8) - 0.4 (0.3) (1.0) - (1.0)
Total net flows (7.1) 2.0 17.3 0.9 (0.3) 12.8 (3.5) 9.3
- - - - - - - -
- - - - - - - -
Cash management
movements(5) - 1.7 - - - 1.7 - 1.7
Market and other
movements(3,7) 7.0 (0.2) (2.4) 1.3 0.7 6.4 - 6.4
At 30 June 2015 274.7 106.4 308.2 16.7 8.6 714.6 11.3 725.9
External inflows(7) 17.5 6.7 14.2 0.8 - 39.2 - 39.2
--------
External outflows(7) (16.1) (1.8) (3.2) (0.6) - (21.7) - (21.7)
--------
Overlay/ advisory
net flows - - 6.4 - - 6.4 (1.1) 5.3
External net flows(3) 1.4 4.9 17.4 0.2 - 23.9 (1.1) 22.8
Internal net flows (0.4) (1.1) - 0.5 (0.1) (1.1) - (1.1)
Disposal of LGF(4) - (2.3) - - - (2.3) - (2.3)
Total net flows 1.0 1.5 17.4 0.7 (0.1) 20.5 (1.1) 19.4
Market and other
Cash management
movements(5) - (0.9) - - - (0.9) - (0.9)
Market and other
movements(3,7) (1.4) (0.2) 12.6 0.9 - 11.9 0.3 12.2
At 31 December 2015(6) 274.3 106.8 338.2 18.3 8.5 746.1 10.5 756.6
1. Solutions include liability driven investments, multi-asset funds,
and include GBP226.2bn at 31 December 2015 (30 June 2015: GBP208.1bn)
of derivative notionals associated with the Solutions business.
2. Solutions external inflows include GBP11.7bn of assets associated
with the transfer of National Grid UK Pension Scheme after the purchase
of their asset manager Aerion Fund Management.
3. External net flows exclude movements in short-term solutions assets,
with maturity as determined by client agreements and are subject to
a higher degree of variability. The total value of these assets at 31
December 2015 was GBP59.9bn (30 June 2015: GBP48.2bn), and the movement
in these assets is included in market and other movements for Solutions
assets.
4. On 31 December 2015, the group sold Legal & General Holdings (France)
S.A. to APICIL Prévoyance.
5. Cash management movements include external holdings in money market
funds and other cash mandates held for clients' liquidity management
purposes.
6. Total assets under management have been reconciled to the financial
investments and investment property on the Consolidated Balance Sheet
in note 3.04.
7. Switches between asset classes are included in the gross inflows
and outflows, and moved out of Market and other movements. 2015 has
been restated for full comparative purposes.
Asset and premium flows Page 58
3.02 Legal & General investment management total assets half
yearly progression (continued)
As at As at As at As at
31.12.16 30.06.16 31.12.15 30.06.15
GBPbn GBPbn GBPbn GBPbn
Total assets attributable
to:(1)
External 804.5 761.4 671.5 636.1
Internal 97.5 91.7 85.1 89.8
Total assets attributable
to:(1)
UK 716.8 689.6 623.7 598.8
International 185.2 163.5 132.9 127.1
1. Total assets at 31 December 2016 include GBP7.8bn of advisory assets
(31 December 2015: GBP10.5bn).
3.03 Legal & General investment management total external assets under
management net flows
6 6 6 6
months months months months
to to to to
31.12.16 30.06.16 31.12.15 30.06.15
GBPbn GBPbn GBPbn GBPbn
LGIM total external
AUM net flows(1) 19.5 9.6 23.9 13.8
Attributable to:
International 7.8 6.7 4.1 5.4
UK Institutional
- Defined contribution 1.2 0.8 1.9 1.0
- Defined benefit(2) 9.8 1.4 17.0 7.1
UK Retail 0.7 0.7 0.9 0.3
1. External net flows exclude movements in short term overlay assets,
with maturity as determined by client agreements and cash management
movements.
2. In the six months to 31 December 2015, Solutions external inflows
include GBP11.7bn of assets associated with the transfer of National
Grid UK Pension Scheme after the purchase of their asset manager Aerion
Fund Management.
3.04 Assets under management reconciliation to Consolidated Balance
Sheet financial assets
As at As at
30.12.16 31.12.15
GBPbn GBPbn
Assets under management 894.2 746.1
Derivative notionals(1) (251.8) (226.2)
Third party assets(2) (234.7) (157.9)
Derivative liabilities 9.0 8.0
Other(3) 9.6 (7.9)
Total group financial investments and investment
property 426.3 362.1
1. Derivative notionals are included in the assets under management
but not for IFRS reporting and are thus removed.
2. Third party assets are those that LGIM manage on behalf of others,
for which the group does not have the risks or rewards and thus are
not incldued on the IFRS balance sheet.
3. Other includes assets that are managed by third parties on behalf
of the group, cash and broker balances.
Asset and premium flows Page 59
3.05 Assets under administration
LGIM
Consol-
Mature idation Retail
Suffolk Retail adjust- Total Nethe- Work- Invest-
For the year Platforms(1,2) Life Savings(3) ment(4) Savings rlands place
ended ments(5) Annuities
31 December 2016 GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
At 1 January
2016 76.9 8.6 29.6 (6.8) 108.3 1.6 14.7 22.6 43.4
Gross inflows(1) 24.2 0.5 0.8 (0.1) 25.4 0.2 4.4 6.7 7.3
Gross outflows (25.5) (0.3) (3.8) 0.5 (29.1) (0.2) (1.1) (6.7)
Payments to pensioners - - - - - - - - (3.0)
Net flows (1.3) 0.2 (3.0) 0.4 (3.7) - 3.3 - 4.3
Market and other
movements 8.0 - 4.1 (0.3) 11.8 0.2 2.8 2.8 6.7
Disposals(6) - (8.8) - 1.8 (7.0) - - - -
At 31 December
2016 83.6 - 30.7 (4.9) 109.4 1.8 20.8 25.4 54.4
LGIM
Consol- France
Mature idation and Retail
Suffolk Retail adjust- Total Nethe- Work- Invest-
For the year Platforms(1,2) Life Savings(3) ment(4) Savings rlands place
ended ments(5) Annuities
31 December 2015 GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
At 1 January
2015 71.9 7.7 36.0 (6.9) 108.7 4.4 11.1 21.3 44.2
Gross inflows(1) 8.7 1.2 1.1 (0.5) 10.5 0.4 3.3 5.9 3.0
Gross outflows (5.2) (0.5) (4.1) 0.8 (9.1) (0.3) (0.7) (5.7) -
Payments to pensioners - - - - - - - - (2.6)
Disposals(7) - - (2.8) - (2.8) (2.7) - - -
Net flows 3.5 0.7 (5.8) 0.3 (1.4) (2.6) 2.6 0.2 0.4
Market and other
movements 1.5 0.2 (0.6) (0.2) 1.0 (0.2) 1.0 1.1 (1.2)
At 31 December
2015 76.9 8.6 29.6 (6.8) 108.3 1.6 14.7 22.6 43.4
1. Platforms gross inflows include Cofunds institutional net flows.
Total 2016 Platforms comprise GBP83.6bn of which GBP39.4bn (31 December
2015: GBP37.5bn) are retail assets and GBP44.2bn (31 December 2015:
GBP39.4bn) are assets held on behalf of institutional clients.
2. Platforms AUA comprise: ISAs GBP21.4bn (31 December 2015: GBP19.9bn);
onshore bonds GBP2.8bn (31 December 2015: GBP3.0bn); offshore bonds
GBP0.1bn (31 December 2015: GBP0.1bn); platform SIPPs GBP3.9bn (31 December
2015: GBP3.5bn) and non-wrapped funds GBP54.0bn (31 December 2015: GBP50.4bn).
3. Mature Retail Savings products include with-profits products,
bonds and retail pensions.
4. Consolidation adjustment represents Suffolk Life and Mature Retail
Savings assets included in the Platforms column.
5. Retail Investments include GBP2.4bn (31 December 2015: GBP2.0bn)
of LGIM unit trust assets held on the Cofunds platform and GBP3.7bn
(31 December 2015: GBP3.2bn) of LGIM unit trust assets held on the IPS
platform.
6. Suffolk Life was sold on 25 May 2016 to Curtis Banks Group plc.
7. GBP2.8bn of assets relating to Legal & General International (Ireland)
Limited, were sold to Canada Life Group on 1 July 2015. GBP2.7bn of
assets relating to Legal & General Holdings (France) S.A. were sold
on 31 December 2015 to APICIL Prévoyance.
Asset and premium flows Page 60
3.06 Assets under administration half-yearly progression
LGIM
Consol-
Mature idation Retail
Suffolk Retail adjust- Total Nethe- Work- Invest-
For the year Platforms(1,2) Life Savings(3) ment(4) Savings rlands place
ended ments(5) Annuities(7)
31 December 2016 GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
At 1 January
2016 76.9 8.6 29.6 (6.8) 108.3 1.6 14.7 22.6 43.4
Gross inflows(1) 2.2 0.5 0.5 (0.2) 3.0 0.1 2.3 3.0 4.0
Gross outflows (2.9) (0.3) (1.8) 0.3 (4.7) (0.1) (0.5) (3.2) -
Payments to pensioners - - - - - - - - (1.4)
Net flows (0.7) 0.2 (1.3) 0.1 (1.7) - 1.8 (0.2) 2.6
Market and other
movements 1.3 - 1.1 - 2.4 0.2 0.8 0.9 5.0
Disposals(6) - (8.8) 1.8 (7.0) - - - -
====================== ============== ======= ========== ======= ======= ====== ===== ======== ============
At 30 June 2016 77.5 - 29.4 (4.9) 102.0 1.8 17.3 23.3 51.0
Gross inflows(1) 22.0 - 0.3 0.1 22.4 0.1 2.1 3.7 3.3
Gross outflows (22.6) - (2.0) 0.2 (24.4) (0.1) (0.6) (3.5) -
Payments to pensioners - - - - - - - - (1.6)
====================== ============== ======= ========== ======= ======= ====== ===== ======== ============
Net flows (0.6) - (1.7) 0.3 (2.0) - 1.5 0.2 1.7
Market and other
movements 6.7 - 3.0 (0.3) 9.4 - 2.0 1.9 1.7
At 31 December
2016 83.6 - 30.7 (4.9) 109.4 1.8 20.8 25.4 54.4
1. Platforms gross inflows include Cofunds institutional net flows.
Total 2016 Platforms comprise GBP39.4bn (30 June 2016: GBP37.2bn) of
retail assets and GBP44.2bn (30 June 2016: GBP40.3bn) of assets held
on behalf of institutional clients.
2. Platforms AUA comprise: ISAs GBP21.4bn (30 June 2016: GBP20.1bn);
onshore bonds GBP2.8bn (30 June 2016: GBP2.8bn); offshore bonds GBP0.1bn
(30 June 2016: GBP0.1bn); platform SIPPs GBP3.9bn (30 June 2016: GBP3.6bn)
and non-wrapped funds GBP54.0bn (30 June 2016: GBP49.5bn).
3. Mature Retail Savings products include with-profits products, bonds
and retail pensions.
4. Consolidation adjustment represents Suffolk Life and Mature Retail
Savings assets included in the Platforms column.
5. At 31 December 2016 Retail Investments include GBP2.4bn (30 June
16: GBP1.8bn) of LGIM unit trust assets held on the Cofunds platform
and GBP3.7bn (30 June 2016: GBP3.4bn) of LGIM unit trust assets held
on the IPS platform.
6. Suffolk Life was sold on 25 May 2016 to Curtis Banks Group plc.
7. Annuities exclude LGRE and LGA assets.
Asset and premium flows Page 61
3.06 Assets under administration half-yearly progression
LGIM
Consol- France
Mature idation and Retail
Suffolk Retail adjust- Total Nether- Work- Invest-
For the year Platforms(1,2) Life Savings(3) ment(4) Savings lands place ments(5) Annuities
ended
31 December 2015 GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
At 1 January
2015 71.9 7.7 36.0 (6.9) 108.7 4.4 11.1 21.3 44.2
Gross inflows(1) 3.8 0.6 0.7 (0.2) 4.9 0.2 1.2 3.0 1.4
Gross outflows (2.7) (0.3) (2.2) 0.4 (4.8) (0.2) (0.3) (3.0) -
Payments to pensioners - - - - - - - - (1.2)
Net flows 1.1 0.3 (1.5) 0.2 0.1 - 0.9 - 0.2
Market and other
movements 1.6 0.3 0.3 (0.2) 2.0 (0.2) 1.1 1.2 (1.0)
At 30 June 2015 74.6 8.3 34.8 (6.9) 110.8 4.2 13.1 22.5 43.4
Gross inflows(1) 4.9 0.6 0.4 (0.3) 5.6 0.2 2.1 2.9 1.6
Gross outflows (2.5) (0.2) (1.9) 0.4 (4.2) (0.1) (0.4) (2.7) -
Payments to pensioners - - - - - - - - (1.4)
Disposals(6) - - (2.8) - (2.8) (2.7) - - -
Net flows 2.4 0.4 (4.3) 0.1 (1.4) (2.6) 1.7 0.2 0.2
Market and other
movements (0.1) (0.1) (0.9) - (1.1) - (0.1) (0.1) (0.2)
At 31 December
2015 76.9 8.6 29.6 (6.8) 108.3 1.6 14.7 22.6 43.4
1. Platforms gross inflows include Cofunds institutional net flows.
Total 2015 Platforms comprise GBP37.5bn (30 June 2015: GBP37.9bn) of
retail assets and GBP39.4bn (30 June 2015: GBP36.7bn) of assets held
on behalf of institutional clients.
2. Platforms AUA comprise ISAs: GBP19.9bn (June 2015: GBP20.0bn); onshore
bonds GBP3.0bn (June 2015 GBP3.2bn); offshore bonds GBP0.1bn (June 2015
GBP0.1bn); platform SIPPs GBP3.5bn (June 2015 GBP3.4bn) and non-wrapped
funds GBP50.4bn (June 2015 GBP46.7bn).
3. Mature Retail Savings products include with-profits products, bonds
and retail pensions.
4. Consolidation adjustment represents Suffolk Life (until disposal)
and Mature Retail Savings assets included in the Platforms column.
5. At 31 December 2015 Retail Investments included GBP2.0bn (June 2015:
GBP1.8bn) of LGIM unit trust assets held on our Cofunds platform and
GBP3.2bn (June 2015: GBP3.3bn) of LGIM unit trust assets held on our
IPS platform.
6. GBP2.8bn of assets relating to Legal & General International (Ireland)
Limited, were sold to Canada Life Group on 1 July 2015. GBP2.7bn of
assets relating to Legal & General Holdings (France) S.A. were sold
on 31 December 2015 to APICIL Prevoyance.
Asset and premium flows Page 62
3.07 LGR new business
6 6 6 6
months months months months
to to to to
31.12.16 30.06.16 31.12.15 30.06.15
GBPm GBPm GBPm GBPm
Backbook acquisitions - 2,945 - -
Pension risk transfer
- UK 2,698 640 831 1,146
- USA 302 45 295 -
- Netherlands - - 145 -
Individual Annuities 220 158 147 180
Lifetime Mortgage Advances 389 231 164 37
Longevity Insurance(1) 900 - - -
Total LGR new business 4,509 4,019 1,582 1,363
1. Represents a reinsured longevity insurance deal transacted in December
2016. The figure quoted represents the notional size of the transaction
and is based on the present value of the fixed leg cash flows discounted
at the LIBOR curve. The first year's fixed cash flow is GBP25m.
3.08 Insurance new business
6 6 6 6
months months months months
to to to to
31.12.16 30.06.16 31.12.15 30.06.15
GBPm GBPm GBPm GBPm
UK Retail Protection 88 82 83 79
UK Group Protection 22 36 29 40
France Protection(1) - - - 30
Netherlands Protection 2 2 2 3
US Protection 34 28 29 41
Total Insurance new
business 146 148 143 193
1. Legal & General Holdings (France) S.A. was sold on 31 December
2015 to APICIL Prévoyance.
3.09 Gross written premiums on Insurance business
6 6 6 6
months months months months
to to to to
31.12.16 30.06.16 31.12.15 30.06.15
GBPm GBPm GBPm GBPm
UK Retail Protection 597 582 567 545
UK Group Protection 100 233 101 229
General Insurance 170 156 173 164
France Protection - - 83 85
Netherlands Protection 27 25 22 24
US Protection 477 420 387 386
Longevity Insurance 160 161 162 164
Total gross written
premiums on insurance
business 1,531 1,577 1,495 1,597
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKODQDBKBDNK
(END) Dow Jones Newswires
March 08, 2017 02:02 ET (07:02 GMT)
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